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* Automatic cap equal to base salary
* Cap can rise to double base pay if shareholders agree
* Will affect around 5,000 people currently in London
* Banks looking at restructuring pay to get around cap
* Singapore, New York and Middle East seen benefiting
By Carmel Crimmins and Kirstin Ridley
DUBLIN/LONDON, Feb 28 (Reuters) - From paying housing coststo devising "loyalty" payments, banks in Europe are alreadylooking at ways around a cap on bonuses for their top staffagreed by European politicians on Thursday.
If unable to circumvent the new rules, then some banks arelikely to review the nuclear option of leaving the region toensure they can still attract star traders and rainmakers putoff working in "low income" London, Paris or Frankfurt.
"The banks are notorious for getting their way when timesare tough," said Jason Kennedy, chief executive of financialrecruiters Kennedy Associates.
"What Brussels is doing is putting European banks at adisadvantage compared to their U.S. rivals, and it is notsomething they will tolerate. They will definitely come up withinteresting schemes to bypass this."
Firms have already offered top bankers from the U.S. largehousing allowances in order to persuade them to come to London,and the curb on bonuses is seen as making it harder still toattract the best in the industry.
Banks in London have a history of finding ways aroundpayroll legislation they don't like. In the 1990s some paid partof their employees' salaries in exotic forms such as goldbullion, diamonds and fine wine to avoid a form of payroll tax.
Senior bankers warned that the curbs would hurt Europeanfirms with large investment banking units, such as Barclays and Deutsche Bank, and benefit rivals suchas U.S. bulge-bracket firms and up-and-coming Asian players.
"There is a risk that if the level playing field is notmaintained, the real talents in Europe will move out," SeverinCabannes, deputy chief executive of France's Societe Generale, told reporters at a conference in Abu Dhabi.
The rules will apply to all banks - American, Asian, Russianor European - based in Europe and to units of European bankslocated abroad, so whether a BNP Paribas trader is inParis or Tokyo, the same cap will apply.
RISK TAKERS
The new rules will not apply to the majority of bank staff,who on average earn bonuses of up to 30 percent of salary.
They will instead target senior management and so-called"material risk takers", those who earn bonuses many times theirbase salary and are renowned for spending the spoils on upmarketpied a terres in west London or 1 million pound Aston Martins.
Analysts said the rules would affect around 300 to 500people in each large bank or around 5,000 people in London, butthat figure will rise significantly, perhaps five to 10 times,as regulators look to expand the definition of "risk takers".
In anticipation of the cap, banks have spent monthsexamining ways of changing their pay structures to keep talentin London, possibly by bumping up allowances and pensioncontributions or offering "loyalty" bonuses.
Raising base pay would increase fixed costs and is beingconsidered by some investment banks, most of which are cuttingback jobs in order to reduce costs, as a last resort.
"Salaries are almost certain to rise substantially, leavingbanks with less flexibility to reduce or claw back bonuses whenneeded," said Jon Terry, remuneration partner at PwC.
The cap allows banks to discount future values of shares,options, bonds or other non-cash payments paid out over a numberof years, but Terry said that was unlikely to raise thepotential bonus much above two and a half times base pay.
With much of the detail yet to be thrashed out - financeministers will discuss it on March 5 - bankers are hoping thatEU member states will be given leeway to interpret the rules.
"What we have at the moment is six bullet points on the backof an envelope," said Terry. "If member states are allowed tointerpret provisions, which is all quite possible, then thatwill give greater scope for restructuring compensation tomitigate the cap."
European lawmakers have argued large performance-relatedbonuses are perverse and encourage the sort of risky behaviourthat caused the 2007-09 financial crisis.
Under pressure from regulators and shareholders, banks havealready cut bonus pools, and awards are increasingly deferredfor longer periods, subject to clawbacks and sometimes paid inways that mean there is no payout if the bank's fortunes falter.
DESK HEADS
The new regime, expected to be implemented next year, is astinging defeat for Britain as it will hit London, home to overone third of the global foreign exchange market, hardest.
"The most this measure can hope to achieve is a boost forZurich and Singapore and New York at the expense of a strugglingEU," said Boris Johnson, London's outspoken mayor.
Financial services make up nearly 12 percent of the annualtax take in Britain, and there are fears that around a third oftax revenues from the financial services sector, or 20 billionpounds, could be at risk if global banks pull out.
"We regard that figure of 20 billion as fragile simplybecause this is going to affect the heads of desks - people whoare running trading," said Chris Cummings, chief executive ofTheCityUK, a body that promotes UK financial services.
"Although that group is quite small, it is a very attractivegroup. What we worry about is that that group will head back toNew York, which is, by and large, where they came from."
U.S. AND ASIAN APPEAL
While European banks appear tightly boxed into theregulations, U.S. and Asian banks can relocate.
Switzerland, a traditional bolt hole for bankers seekingrelief from high taxes, may have lost some of its lustre,however, with a 20 percent increase in the Swiss franc since thesummer of 2010 hiking the cost of locating there. And Swissvoters are likely on Sunday to back the world's strictest curbson executive pay, according to a recent poll. [ID: nL6N0BKBGI]
While London's buzzing nightlife and glitzy shops are a bigdraw for investment bankers, the low taxes and higher salariesof Asia and the United States are attracting talent,particularly the next generation of investment bankers who donot have family commitments tying them to one city.
"It's not clear yet how this will be enforced, but I mightreconsider opportunities in the U.S. within the bank," said onesenior banker at a U.S. investment bank in London.
Singapore was the top location to work, followed by New York,with London third in a survey of UK investment bankers byfinancial services recruitment firm Astbury Marsden last year.
With banker bonuses continuing to fall in the aftermath ofthe financial crisis and speculative trading desks closed down,many traders have fled for hedge funds and private equity firms.
Such funds are not covered by Thursday's deal but will faceseparate restrictions on pay under another EU law this year,further hampering London's position.
